The aim of this article is to contribute to the debate on recent increases in housing costs and house prices and assist informed decision making by providing information from some available ABS data sources in relation to this issue.

For most people, buying a house is the single largest financial decision they have to make. Recent economic trends in the country, solid economic growth, low unemployment rates and low interest rates have all contributed to the boom in housing prices. For home owners, an increase in house prices represents an increase in their wealth. However, for people looking to purchase their first home in a period of increasing housing prices, entry into the real estate market will require a larger commitment to servicing home loan repayments. Due to the segmented nature of the housing market, the difference in the regional characteristics as well as the differences in circumstances between the first home buyers, changeover buyers and rental investors, care should be taken when analysing housing costs and the impact on the individual household.

Housing costs are a major component of total living costs. People with relatively low economic resources (income and wealth) and high housing costs may experience hardship. Some people pay high rent or mortgage repayments, especially if they live in areas with high land and house values. Others have smaller rent or mortgage repayments because, for example, they live in subsidised housing or areas with relatively low property prices, or have relatively small mortgages.

In comparing households' housing costs with their income, it should be borne in mind that households have a variety of housing preferences. People may choose to live in an area with high land values because it is close to their place of employment and therefore they would have lower transport costs. Some people may choose to incur relatively high housing costs because they prefer a relatively high standard of housing, or wish to pay off a mortgage relatively rapidly as a form of investment. In any case, all repayments of mortgage principal are additions to the wealth of the household.

While housing costs can be a major component of total living costs, the difference between the housing costs of a larger household and a smaller household would not be expected to be as great as the difference in many other costs, such as food or clothing. In other words, larger households can be expected to experience economies of scale in the supply of housing. This means that if a larger household and smaller household both have the same standard of living, it could be expected that on average the larger household will have a lower housing costs/income ratio. Therefore relatively high housing costs/income ratios are more of a concern with respect to larger households than smaller households. This should be borne in mind when comparing ratios across different household sizes.

It should be stressed that care should be exercised when comparing data from the different sources due to the different methodologies used in these surveys.

EXECUTIVE SUMMARY

On 2006 Census night in Tasmania, 36.8% of all occupied private dwellings were fully owned.

On 2006 Census night in Tasmania, 24.6% of total occupied private dwellings were rented.

Tasmanian households on 2006 Census night were paying on average (median) $867 a month on loan repayments. At the same time, the median weekly rent paid was $135. This, in real terms, represents an increase of 23.1% and 16.4%, respectively, on median loan and median rent paid in Tasmania on the 2001 Census night estimates.

In 2006-07, there were 2,100 first home buyers in Tasmania compared with 2,900 in 2001-02.

In December 2006, the median house price of established house transfers stood at $275,300.

In May, June, and July 2007, Tasmania in trend terms recorded an unemployment rate of 5.0%, the lowest level since the start of the series in February 1978.

In November 2007 housing loans banks' standard variable rate stood at 8.55%, compared with 6.05% in December 2001.

The change in the population size, population characteristics and population movement can all have a strong influence on the supply/demand, and prices of housing. An increase in the population has a direct impact on the demand for more houses. Strong positive net migration into Tasmania in recent times, together with an increased birth rate, change in household composition and smaller households all have strengthened the demand for more houses.

Tasmanian estimated resident population increased by 3.1% from 474,400 people at 30 June 1996 to 488,900 at 30 June 2006.

Australian population increased by 12.5% from 18.3 million at 30 June 1996 to 20.6 million at 30 June 2006.

The number of households and their characteristics are important factors and have a direct influence on the housing demand. The number of households is increasing at a faster rate than the population number, and as the population ages, households are tending to decrease in size. This in return increases the pressure on the demand for houses.

At 30 June 2006 there were 202,800 households in Tasmania, an increase of 7.4% on number of households from 30 June 2000 and 11.2% from the June 1995 estimate.

At 30 June 2006 there were 8.1 million households in Australia, an increase of 11.1% on the number of households at 30 June 2000 and 20.9% from June 1995.

At 30 June 2006 the average Tasmanian household size had decreased to 2.3 persons from 2.4 persons in the same period in 2002.

At 30 June 2006 the average Australian household size had decreased to 2.5 persons from 2.6 persons in the same period in 2002.

In recent years Australia has enjoyed favourable economic and employment conditions, with solid economic growth and historically low unemployment. Economic and employment stability plays a vital role in people's confidence in making their financial decisions. Personal commitment to buy a house is a decision that people are more likely to make in a low unemployment and more stable economic environment.

Since 2000-01 the Tasmanian economy has recorded solid growth. In 2000-01 the economy experienced negative growth of 1.6% on the previous financial year. In the remaining years to 2005-06 Tasmanian Real Gross Income per capita recorded positive growth between 3.0% and 5.4%.

In May, June, and July 2007, Tasmania in trend terms recorded an unemployment rate of 5.0%, the lowest level since the start of the series in February 1978.

From the period May 2007 to October 2007 the Australian unemployment rate, in trend terms, also recorded its lowest level of 4.3%.

Average weekly household income in 2005-06 in Tasmania was $1,025. This represented an increase of 14.3% on 2003-04 and 69.1% on 1999-2000 respectively.

Continuing strong demand for housing led to an increase in the building approvals in recent years. Since 2000-01, building approvals in Tasmania have been showing strong signs of recovery after a period of lesser activity in the late 1990s.

In Tasmania in 2006-07 there were 2,900 new residential buildings approved. This represented an increase of 10.7% on the 2005-06 estimate of 2,600 and an increase of 142.3% on the 2000-01 estimate of 1,200 new residential buildings approved.

In 2006-07 there were 151,800 new residential buildings approved in Australia. This represented a 1.9% increase on the 2005-06 estimate of 148,900 and a 28.5% increase on the 2000-01 estimate of 118,100 new residential buildings approved.

Since 2002 the house price index and the median price of established house transfers for established homes in Hobart have been showing a strong increase. While the house price index shows a continuing strong increase in prices of established houses, the number of established house transfers in the established house market shows a steep decline indicating tightening of the housing market.

In the June quarter 2007 the house price index for established homes in Hobart increased by 9.7% on the June quarter 2006, 26.8% on the June quarter 2004 and 137.3% on the June quarter 2002.

In December 2006 the median price of established house transfers in Hobart stood at $275,300. This was an increase of 9.3% on the December 2005 price of $251,800, 14.7% on the December 2004 price of $240,000 and 115.1% on the December 2002 price of $128,000.

In December 2006 there were 918 established house transfers in Hobart which represented a decrease of 7.8% on the same period in 2005, 26.3% and 37.3% lower on December quarter 2003 and December quarter 2002 estimates respectively.

In recent times, favourable economic conditions, low unemployment, low interest rates and strong economic growth, have all contributed to a strong business sentiment in Tasmania and the country as a whole. These conditions have created the environment for a strong increase in housing lending commitments. The increase in house prices across the country has resulted in an increase in the personal wealth of homeowners, however for first home buyers this situation has increased the amount many are required to borrow to enter the housing market.

In 2006-07 in Tasmania in trend terms there were 14,500 housing finance commitments for owner occupation (excluding alteration). This was an increase of 4.7% on 13,900 commitments in 2005-06 and a 51.3% increase on the 1997-98 estimate of 9,600 finance commitments for owner occupation (excluding alteration).

In 2006-07 in Australia in trend terms there were 772,000 housing finance commitments for owner occupation (excluding alteration). This represented a 6.2% increase on 2005-06 of 726,800 and a 62.4% increase on 1997-98 estimate of 475,400 finance commitments for owner occupation (excluding alteration).

In the first two years of this decade, there was a sharp increase in Tasmania in the number of first time home buyers, coinciding with the introduction of the Commonwealth First Home Owners Grant in 2000. However, after this peak in 2001-02, there was a noticeable decline which bottomed out in 2003-04. Since then, there has been some recovery in numbers in 2005-06.

In 2006-07 there were 2,100 first home buyers' dwellings financed. This represented a decrease of 6.6% on the 2005-06 estimate of 2,200 dwellings financed for first home buyers.

In 2001-02 there were 2,900 Tasmanian first home buyers dwellings financed which was 89.0% above the 1997-98 estimate of 1,600.

In 2006-07 in Tasmania first home buyers' dwellings financed made up 16.6% of the total dwellings financed. This represented a decrease on the same contribution of 19.1% in 2005-06.

In 2006-07 the average loan size for first home buyers in Tasmania was $164,400. This represented a 122.5% increase on 2000-01 average loan size of $73,900.

For the last ten years, the Australian economy has experienced historically low interest rates.However, since a low 6.05% Banks' home loans standard variable rate in December 2001, there have been several increases of 0.25 percentage points. As at November 2007 housing loans banks' standard variable rate stood at 8.55%.

On the 2006 Census night the proportion of occupied private dwellings that were fully owned by their occupants, in relative terms, had decreased in Tasmania as well as in Australia. This change may in part reflect the increasing uptake of low-cost financing options which allow households to extend their existing home mortgages for purposes other than the original home purchase.

On the 2006 Census night in Tasmania, 36.8% of all occupied private dwellings were fully owned. This was a 4.8 percentage points decrease on the 2001 Census night estimate of 41.6%.

On the 2006 Census night in Tasmania, 32.3% of the total occupied private dwellings were owned with a mortgage, an increase of 4.1 percentage points on the 2001 Census estimate of 28.2%.

On the 2006 Census night in Tasmania, total occupied private dwellings being rented represented 24.6% of total occupied private dwellings, an increase of 0.5 percentage points on the 2001 Census estimate of 24.1%.

OCCUPIED PRIVATE DWELLINGS - Tasmania(Tenure type)

OCCUPIED PRIVATE DWELLINGS - Australia(Tenure type)

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OCCUPIED PRIVATE DWELLINGS BY LANDLORD TYPE

The 2006 Census results showed there were an increased number of dwellings, in relative terms, in Tasmania being rented from real estate agents and fewer rented from the state housing authority. A general decline in public housing rental stock and greater access to Commonwealth Rent Assistance (CRA) payments may have influenced this change in direction.

In Tasmania on the 2006 Census night, of the total occupied private dwellings being rented, 22.5% were rented from the state housing authority and 30.8% were rented from a real estate agent.

The estimates above correspond with the 2001 Census estimate of 26.6% being rented from the state housing authority and 23.8% from a real estate agent.

The results of the 2006 Census show Tasmanian households spent more on housing coststhan in 2001 (after adjustment for inflation). Median housing loan repayments and median rent in Tasmania, have increased in real terms over 2001 Census estimates. However, the effect of Commonwealth Rent Assistance (CRA) should be taken into consideration when comparing the housing costs of private renters to those of other households. Eligible social security recipients may receive a non-taxable income supplement in the form of CRA if the private rent they pay is above a threshold level.

On the 2006 Census night the Tasmanian household median monthly loan repayment was $867. This in real terms (all groups CPI adjusted) represents an increase of 23.1% on the median loan repayment of $704 on the 2001 Census and 14.4% on the median loan repayment of $758 in 1996 Census.

The household median weekly rent in 2006 in Tasmania was $135. In real terms this is an increase of 16.4% and 9.7% on the weekly rents of $116 and $123 in the 2001 Census and 1996 Censuses respectively.

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